Predictions for 2022: The cryptocurrency industry has attracted substantial attention throughout 2021. These developments pave the way for a brighter future in 2022.

KuCoin Labs recently launched a market report. It identifies potential trends and forecasts that could materialize in the coming months.

Infrastructure bottlenecks remain a problem

While competition among infrastructure providers has heated up significantly in 2021, crucial bottlenecks still need to be addressed. For example, Ethereum (ETH) remains the main blockchain for DApp development, but it suffers from network congestion and high transaction fees. Several Layer 2 solutions address this issue, but it is still a challenge for them to gain traction in the long term. This also applies to most “Ethereum competitors” as they are all still at an immature stage today. Addressing these limitations is essential in 2022 and beyond.

Many people are hoping that the release of Ethereum 2.0 will help alleviate some concerns. Its fragmentation implementation addresses network congestion, transaction fees, and low throughput. Unfortunately, this launch will take place in multiple phases and may not reach completion in 2022. Other networks – Binance Smart Chain, Solana and Avalanche – will continue to attract users and developers as long as Ethereum remains a bottleneck.

However, it is crucial to note that Tier 2 solutions will see a similar path to Ethereum. It is a matter of time before gas prices in these tiers start to skyrocket, making them less favorable solutions to avoid Ethereum transaction fees. Unless developers can find innovative solutions, this will also affect any cross-chain bridges that utilize Layer 2 networks.

NFT and Metaverse Efforts in 2022

The role of non-fungible tokens (NFT) in the Metaverse will become more outspoken in 2022 and beyond. The current NFT market is being divided into art, collectibles and games. But new initiatives and vehicles using non-fungible token standards will hit the market. Additionally, NFTs will assist in various Metaverse activities including avatars, virtual spaces, economic activities, etc. In essence, Metaverse can help finalize NFT development application scenarios, while non-fungible tokens fuel Metaverse growth.

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Speaking of Metaverse, it mostly revolves around today’s games. However, technology has tremendous potential to blur the line between real-world and virtual-world activities. Projects that create their own closed Metaverse is a necessary first step towards achieving this goal. Connecting these virtual worlds will be a major hurdle to overcome, culminating in a multi-Metaverse.

Two other Metaverse trends to include the role of DeFi and cross-chain bridges. Decentralized funding has proven to be efficient and stable, making it a solid foundation for Metaverse’s economic activities. Furthermore, DeFi and NFTs form a solid combination and apply to many Metaverse use cases. The Metaverse equals user empowerment. The accommodation of more diverse assets, products and services paves the way for broader financial inclusion.

Developers can make a lot of progress on the cross-chain bridge front to Metaverse. Current initiatives focus on a blockchain, creating an “ecological island” problem. Additionally, most public chains struggle on the infrastructure front, reducing the appeal of Metaverse projects that leverage their technology. Cross-chain bridges can overcome these challenges and introduce better efficiencies for Metaverse, NFTs, and decentralized finance.

Forecasts for 2022: regulatory trends

As in previous years, regulation of the cryptocurrency industry remains a pressing topic. Most nations across the world have yet to decide on that front. The lack of a clear structure can stifle innovation, which needs to be avoided at all costs. Regulating this industry becomes even more difficult thanks to innovative concepts like DeFi, NFTs, the Metaverse, etc.

Regulators and policymakers will need to focus on creating legal frameworks for Metaverse. The technology has gained the attention of enthusiasts and countless companies. Clear guidelines on what can and cannot be done in the virtual world will help to legitimize these efforts. KuCoin Labs analysts expect things to improve dramatically on that front. Furthermore, the report suggests that policymakers adopt some guidelines sooner rather than later. This can impact decentralized identifiersan identification method for the Metaverse usable in different activities.

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Predictions for 2022: DeFi Regulation

Decentralized funding will undoubtedly also attract interest from regulators. However, protecting investors without compromising innovation and decentralization is a major hurdle to overcome. Also, current regulatory guidelines may not apply to the DeFi industry. As a result, a new regulatory model may be needed, depending on how the SEC, BIS or FATF approach the sector.

Furthermore, the governance of DeFi protocols presents a unique regulatory hurdle. Larger token holders gain more voting power, introducing a degree of centralization. Achieving decentralized governance has proven to be virtually impossible so far, but Decentralized Autonomous Organizations (DAOs) can offer relief. KuCoin Labs expects DAOs to be a big trend in DeFi for 2022, although new mechanisms may emerge.

A final topic to consider is unifying decentralized finance with KYC requirements and user privacy. Some degree of regulatory compliance will need to be found. Allowed DeFi solutions such as Aave Arc are an intriguing approach to this problem. However, the KuCoin team expects institutional and non-institutional DeFi users to have to comply with regulations sooner rather than later. On-chain KYC could be an option, though developers may explore other ideas this year.

Predictions for 2022: Blockchain Security Outlook

The year 2021 was filled with various blockchain security incidents again. Ranging from DeFi rug-pullings to swapping smart contract hacks and exploits, something needs to change in 2022 and beyond. Unfortunately, this is much easier said than done, especially since blockchain transactions are irreversible. Furthermore, there is no real “protection” for affected users, although insurance protocols can provide a solution.

Code auditing needs to become the norm in 2022 across the blockchain industry. Several auditing firms have established their presence, including CertiK, SlowMist and others. An audit can help uncover any bugs or issues before smart contracts are deployed in an active environment. As audit firms become better funded, they will help eliminate more risk in the blockchain industry. However, it is up to developers and coders to verify their code, and not everyone will.

Insurance protocols can provide an extra layer of protection and security. Several of these protocols exist in DeFi today, and they primarily focus on mutual fund pools or financial derivatives. Unfortunately, its growth is hampered by high fees, KYC requirements, no cross-chain support, and inefficient use of capital. However, according to the report, attracting institutional actors will require better and more efficient insurance protocols.

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A final aspect to consider is transactional privacy. Public blockchains provide pseudonymity, but not privacy or anonymity. Even privacy computing protocols – Manta, Oasis, zkSync, etc – sacrifice decentralization in favor of computing power. Demand for transactional privacy will increase as blockchain and cryptocurrency grow, demanding more and better privacy computing initiatives.

The year can be challenging but productive

The year 2022 can introduce many much-needed changes to the industry at large. Ongoing developments to bring decentralized technology into the mainstream are a way to look forward. But, unfortunately, this innovation will require some regulation to convince the general public. Whether regulators will finally make tough decisions remains unclear, but they can’t put off those decisions forever.

In terms of industry, resolving current infrastructure bottlenecks remains crucial. Innovative ideas like DeFi, NFTs and the Metaverse cannot come to fruition through existing infrastructure rails. Large inefficiencies and high costs need to be eliminated without compromising decentralization.

There’s a lot to look forward to in 2022, but there’s also a lot of work to do.

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